IT stocks edge lower

A divergent trend was witnessed among the key index constituents in mid-morning trade with the barometer index, the S&P BSE Sensex trading with small gains and the 50-unit Nifty 50 index trading with minuscule losses. At 11:15 IST, the Sensex was up 16.58 points or 0.07% at 24,623.57. The Nifty was currently down 3 points or 0.04% at 7,472.60. The Sensex hit its highest level in more than four weeks. The Nifty hit its highest level in more than three weeks.

In overseas stock markets, Asian markets were mixed. In mainland China, the Shanghai Composite was currently off 1.67%. In Hong Kong, the Hang Seng index was currently up 0.54%. In Japan, the Nikkei 225 Average was currently up 0.05%. US stocks closed slightly higher yesterday, 3 March 2016, as oil prices stabilized.

Closer home, the market breadth indicating the overall health of the market was positive. On BSE, 1,214 shares rose and 838 shares fell. A total of 97 shares were unchanged. The BSE Mid-Cap index was currently up 0.85%. The BSE Small-Cap index was currently up 0.71%. Both these indices outperformed the Sensex.

Metal and mining stocks edged higher after favourable announcements in the Union Budget 2016-17 announced early this week. Hindustan Copper rose 0.83%.

Among steel makers, Steel Authority of India (Sail) (up 0.25%) and JSW Steel (up 0.69%) edged higher. Tata Steel (down 0.1%) and Jindal Steel & Power (down 1.11%) edged lower. The doubling of clean energy cess on coal from Rs 200 to 400 per tonne in Union Budget 2016-17 would further increase the input cost for domestic steel makers and hurt margins. On the flip side, the thrust on infrastructure sector in the Budget will help generate much needed demand for steel industry which is reeling under competition from imports and poor domestic demand.

Among aluminium makers, Hindalco Industries (down 0.19%) edged lower. National Aluminium Company (up 1.09%) edged higher. Union Budget 2016-17 addressed rising import issue of the aluminium sector by increasing the custom duty on primary aluminium to 7.5% from 5% and increasing the Basic Customs Duty on other aluminium products to 10% from 7.5%. The increase in custom duty will help to check imports of aluminium. On the flip side, the reduction in export duty on bauxite to 15% from 20% would decrease domestic ore availability.

Hindustan Zinc gained 2.29% at Rs 174.10. The government raised the Basic Customs Duty on zinc alloys to 7.5% from 5% in the Union Budget 2016-17.

Vedanta was up 0.72%. In Union Budget 2016-17, Finance minister Arun Jaitley withdrew export duty on iron ore fines and iron ore lumps with iron content below 58%, which were previously charged export duty of 10% and 30%, respectively. The low grade iron ore, exported by Vedanta from Goa, has few takers in the country, which still relies of high quality iron ore to produce steel. Hence, cut in export duty on low grade iron ore augurs well for the company. The finance minister also hiked import duty on aluminium to 7.5% from 5% in a bid to save the industry from cheap imports, which is also a positive development for Vedanta. Basic customs duty on other aluminium products increased from 7.5% to 10%. Basic customs duty on zinc alloys also increased from 5% to 7.5%.

IT stocks edged lower. Wipro (down 1.13%), TCS (down 0.25%), HCL Technologies (down 0.65%) and Tech Mahindra (down 0.38%) declined. Oracle Financial Services Software (up 2.44%) and Infosys (up 0.67%) edged higher.

The Union Budget 2016-17 is mixed for the technology and services sector. Industry association Nasscom believes, in the backdrop of global economic volatility, there are unmet expectations on policy announcements in the budget that enable ease of doing business for the IT sector. The budget partially covers its wish list on policy bottlenecks, including ease of business, nurturing start-ups, products and e-commerce sector. Domestic IT services and software companies such as TCS, Infosys, and Persistent Systems can look forward to service the technological initiatives announced in the budget and convert them into opportunities for growing their domestic business as well as help the government to increasingly digitize the economy.

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